The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)

My Lords, I thank noble Lords for their questions on this Statement. There are quite a lot of questions, so I will do my best to cover them but, as always, if I have missed anything out, we will get back to noble Lords. First, it is important to point out that this letter is the Secretary of State simply offering her preliminary views. That is in line with the duties in Section 2 of the Water Industry Act 1991. She puts forward those preliminary views for Ofwat to consider when it is making its decision, because it is important to be clear that it is for Ofwat, not government, to decide whether it rejects or accepts the proposal. Of course, the Secretary of State’s preliminary view, which is why we are making the Statement, is that she is not convinced that the proposal in its current form delivers for customers or for the environment, as mentioned by the noble Baroness, Lady Grender. Also, while the company is considered to be stable at the moment, we stand ready for all eventualities. That includes being ready to apply for a special administration regime, if that becomes necessary. It is also important to clarify that there is a very high bar for the use of a special administration regime. The law states that special administration can be initiated only if the company becomes insolvent, or if it is in such serious breach of its principal statutory duties or an enforcement order that it is inappropriate for the company to retain its licence. Regarding creditors and shareholders and what they would recover upon an exit of a SAR, again, the purpose of a special administration regime is not to bail out water company shareholders or creditors; it is to ensure that water and wastewater services continue if a water company fails. When a water company exits from special administration, which could be either via rescue or through transfer, the special administrator, not the Government, determines the level of repayment to creditors by applying the relevant insolvency legislation. The level of recovery that creditors may expect will be in accordance with the relevant insolvency legislation, and it is very unlikely that all creditors’ debt would be repaid at the end of a special administration, because of the priority order of repayment. I hope that helps answer some of the questions from the noble Lord, Lord Roborough. The noble Baroness, Lady Grender, discussed the performance grounds. To apply successfully for a special administration on performance grounds, a strong evidence case must be made to the courts. In determining whether to apply to the court for a special administration regime, the Secretary of State must have regard to all the relevant facts and matters pertaining at the time and act in accordance with the applicable statutory duties. On the environmental obligations raised by the noble Baroness, all companies must continue to meet their statutory obligations to customers and the environment, and regulators will continue to have a range of enforcement tools at their disposal. It is not possible for creditors to ask for the debt to be repaid during a special administration regime because there is a moratorium on legal proceedings during a SAR that takes away a creditor’s ability to enforce debt repayments. However, employees have some protection in being able to recoup certain debts, such as unpaid wages, via the Redundancy Payments Service. On customer impact, we have always been absolutely clear that Thames Water must meet its statutory and regulatory obligations to its customers and the environment. The Secretary of State has set out her preliminary views on this to Ofwat in the letter. The next steps are of course for Ofwat to decide. However, many concerns have been raised about not just Thames Water but other water companies and their approach to the environment, which is one of the reasons why, as a Defra priority, we will bring in a new water Bill later this year. A key element will be looking at environmental impacts. People are obviously frustrated. One of the very first meetings I had when I became a Minister nearly two years ago was about Thames Water. It has been going on for a long time—it was going on before this Government. The business has been underperforming now for 15 years, which is a long time. It has regularly missed its performance targets and has racked up too much debt. It was right that the Secretary of State wrote to Ofwat to set out her preliminary thoughts on the next approach. Ofwat, with the support of government, has been in discussions with the London & Valley Water consortium—a group of Thames Water’s creditors—on the terms of the proposal being put forward. Clearly, a recapitalisation process of this size is complex and takes time. Although we will establish, through the forthcoming Bill to which I referred, a new, single, powerful regulator to replace Ofwat—so that we can work better when water companies fail in future—until the new regulator is established, Ofwat’s role remains. Therefore, it is still Ofwat’s decision on how we go forward. I want to be clear that the Government are working with all water sector regulators to monitor carefully the performance of all water companies, including Thames Water. As I said earlier, if there are ever any problems, we stand ready to intervene, should it be required, because it is important that the continued provision of a vital public service in water supply and wastewater is continued. We will always act to protect the public interest. We believe that any proposal has to be in the best interests of both consumers and the environment. It is important to note that the Secretary of State has written at this stage because we need time to understand the proposal and work it through. There are about 16 million Thames Water customers, so any decision that Ofwat makes must be done in the full understanding of various opinions, as well as on what is best for consumers and the environment. I hope that I have covered most of the questions raised; I will write if there are any further answers to give.